Friday, 14 February 2014

These are the people in my neighbourhood

Neighbours around the block frustrated with EQC spray-painted their cement fence back in October.

It reads:

"Too dangerous to work on. But safe enough to live in. Look at my roof. Be aware! This is a finished EQC Repair. Can't sell it. Too dangerous to live in."

The Christchurch Star explains what's happened.

This house was repaired six months ago by a Fletcher EQR contractor - a plumbing company.
The plumbing company told Mr Walkinshaw it was out of its expertise to fix the roof - and it was too dangerous to try.
The Walkinshaw family is now stuck on an Earthquake Commission and Fletcher EQR merry-go-round to get the roof and other repairs fixed.

EQC says the roof damage was pre-existing; the Walkinshaws have an engineering report from 6 December 2010 (post-September, pre-February) with no evidence of cracked beams. EQC told the Star they hadn't received the engineering report; Walkinshaw tells the Star that he'd never heard that from EQC. A typical EQC SNAFU. Meanwhile, the family's worried that the roof will fall in on their kid's bedroom.

For those who've forgotten: The Earthquake Commission (EQC) is the government-run insurance scheme handling natural disasters. Anyone buying insurance on a house pays a levy for EQC coverage. In the event of natural disasters, EQC handles land remediation around the house and the first $100,000 (plus GST) in damages to the house. If you have minor damage to your house, EQC is your first port of call. If you have damage in excess of $100,000, you'll have to deal with both EQC and your private insurer.

The general principle of the scheme is good. Absent compulsory natural disaster coverage as part of your homeowner's insurance, a lot of people would be sorely tempted to simply bet on that the government would bail everybody out in the event of a natural disaster. With EQC, anybody with private home insurance, which is pretty much compulsory for anybody wanting to get a mortgage, has coverage for natural disasters. It's then way easier for the government, post-disaster, to refuse to bail out those who didn't buy insurance. Alas, the execution's been rather disappointing in the Canterbury quakes.

Our own frustrating but still happier situation? When last we reported in, we thought repairs would be coming soon. Alas, we're still waiting for EQC to approve our builder's quotes. Fortunately, our house is safe and liveable while we wait. We had an AMI Premier Home Insurance policy which specified that repairs must be undertaken to an "as new" standard. Since we have less than $100k total damage, EQC is handling the claim on our house. EQC won't sign off on the builder's quotes, as best I can tell, because our builder won't come down to Fletcher's rates.

Fletcher's is the project management company that the government is using as first port of call for earthquake repairs under EQC; we opted out and chose a builder specialising in older character homes. We heard too many horror stories in Fletcher's managed projects: shoddy workmanship, repeat repairs, and poor project management where one set of subcontractors gets the job half-finished and the next set aren't booked in until months later. Read the comments thread here, for example. EQC seems to be trying to force the opt-out contractors down to rates inconsistent with the quality of job specified in homeowners' insurance contracts. There's talk of a class action suit on it.

Our private insurer had a look at the out-of-scope damage* and will be sending us a quote for fixing the paths and driveway; we're waiting on their specialist engineer to come look at the pool.

After all of our home repairs are finally completed, I will be shopping around for a new home insurance company. I will also be asking whether I can pay extra to have actual real coverage for under-cap damage in any EQC event. I can't avoid paying premiums for EQC's near-fraudulent-but-still-mandatory insurance coverage, but I hope that I'm able to buy actual real insurance that will pay out in the case of an adverse event. Many of us in Christchurch thought we were paying for insurance contracts with a $5,000 deductible; where EQC won't honour the terms of your contract, the effective deducible is rather higher than that.

For those Wellington readers in positions to change things: These messes will happen to you and to people you care about when Wellington gets its quake if you don't fix EQC. EQC shouldn't be involved in house assessment for a major event: they just can't scale up to do it properly. Homeowners should only have to deal with their private insurers. The insurer would then bill EQC for repairs up to the EQC-covered amount. Couple it with audits to make sure the insurer isn't just providing $100k home-improvement gifts to its policy-holders. This will be more expensive than the current system, so increase the EQC levies and risk-adjust them.

Update: In response to my emailed query, Treasury tells me that the Government is still working on the review, that things have been complex, and there is no new target date for the release of the public discussion document.

* EQC covers damage to your house and buildings; paths, driveways, swimming pools, and fences are out of EQC scope and are handled directly by your insurer.

4 comments:

Interested in your rationale as to why your proposed "deal with your insurer, they invoice EQC" scenario would be more expensive. Seems to me that in the current scenario both EQC and your insurer deal with you, which is duplication. In your proposed solution only one of them deals with you, removing some workload. That would perhaps more than offset the cost of auditing?

Even if we focus only on the cost of assessing, then it's only more expensive if we think that EQCs slow and unweildy processes are cheaper than doing it quickly. Given that EQC are a monopoly and insurance companies are not, there's reason to think the insurance companies might do it more cheaply.

Either way, I'd argue the EQC portion of the cost would reduce, even with the addition of audits. I doubt the insurers would put up their premiums for what they see as an infrequent occurrence.

Finally, there is a possibility that more or higher claims would be paid out when the insurer is assessing. But the suggested audit regime should mostly address that, and I'd guess that the current EQC regime has a substantial error rate as well.